Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (11) TMI 25 - BOMBAY HIGH COURT

2016 (11) TMI 25 - BOMBAY HIGH COURT - TMI - Rights under the SARFAESI Act - continuation of ad-interim order - Held that:- The Petitioner, in exercise of its powers under Section 13 of the SARFAESI Act took possession of the properties. Thereafter, this Notification and which we have declared to be not binding on the Petitioner, came to be issued. In the meanwhile, on 6th June, 2013, the Collector and District Magistrate, Kolhapur (Respondent No.3) called upon the Petitioner to hand over posses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ingly, whilst granting interim reliefs in favour of the Petitioner, it was directed to maintain status-quo. However, it was permitted to proceed with the auction but not finalize the sale pursuant thereto, until further orders. This Court did not prevent Respondent No.4 from adopting proceedings either before this Court or the DRT under Section 17 of the SARFAESI Act. Now, the order passed by this Court records that the Collector and District Magistrate cannot insist on the Petitioner handing ov .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cessful bidder or auction purchaser proposes to take. In these circumstances, and on some vague understanding of the parties, we cannot continue this ad-interim order. Rather, after the Petitioner has succeeded, there is no point in restraining it from exercising its rights under the SARFAESI Act. This is more so in the facts of the present case because Respondent No.4 - Borrower is indebted to the Petitioner and other consortium banks for more than ₹ 250 Crores (approximately), and has no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ner had originally challenged the notification dated 11th June, 2014 issued by Respondent No.2 under the provisions of the Maharashtra Relief Undertakings (Special Provisions) Act, 1958, [formerly known as the Bombay Relief Undertakings (Special Provisions) Act, 1958] (for short "BRU Act"). This notification was valid for a period of one year from the date of its issuance. It has thereafter been brought on record that subsequent notifications have also been issued and the notification .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

suspended and all proceedings relating thereto pending before any Court, Tribunal, Officer or Authority shall be stayed, provided Respondent No.4 (the said Relief Undertaking) adopts all necessary reforms mandatorily as decided by the State Government during the said period. 2. When this matter was taken up on 11th June, 2013, a Division Bench of this Court had observed that the effect of these notifications issued under the provisions of the BRU Act, qua the provisions of the Securitisation an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion of the property of which possession was taken, but shall not finalize the same until further orders of this Court. Thereafter, on 12 August, 2014, rule was issued in this Writ Petition and the ad-interim relief granted on 11th June, 2013 was continued as interim relief pending the hearing and final disposal of the Petition. The hearing of this Writ Petition was also expedited. It is in these circumstances, this Writ Petition has come up before us for hearing and final disposal. 3. We must a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e notifications issued under the provisions of the BRU Act, the Petitioner, being an Asset Reconstruction Company ("ARC") as defined under the provisions of the SARFAESI Act, is entitled to take recourse to the provisions thereof in accordance with law and proceed to sell its secured asset and recover its dues. 4. Before we deal with the contentions which have been raised for our consideration, it would be necessary to set out some few facts. They are as follows:- (a) The Petitioner is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

siness in textile manufacturing and export thereof. Respondent No.4 had originally taken financial assistance and was the borrower of Bank of India as well as other banks in the consortium. Thereafter, the debt, (alongwith the underlying security interest) owed by Respondent No.4 to Bank of India, was assigned in favour of the Petitioner. In these circumstances, the Petitioner is before us. Any reference to the Petitioner hereinafter, shall mean JM Financial Asset Reconstruction Co. Pvt. Ltd. an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aults were committed by Respondent No.4 in servicing the loans and advances granted to it, the Petitioner declared the account of Respondent No.4 as a non-performing asset. Thereafter, in or about 2nd May 2012, the Petitioner has for and on behalf of itself as well as other consortium banks issued a notice under section 13(2) of the SARFAESI Act calling upon Respondent No.4 to pay an amount of ₹ 264,74,22,000/- to the Petitioner and other consortium banks. (d) As Respondent No.4 did not di .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssession of the said property. Accordingly, Respondent No.3 passed an order on 11th March, 2013 directing that physical possession of the said property and which was secured as a mortgage in favour of the Petitioner and other consortium banks, be handed over by Respondent No.4. Accordingly, and pursuant to the aforesaid order, physical forcible possession of the said property was taken by the Respondent No.3 and handed over to the Petitioner on 29th April, 2013. The Petitioner has been in actual .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

all this, Respondent No.4 approached Respondent Nos.1 and 2 and got a Notification issued by the State Government under the provisions of sections 3 and 4 of the BRU Act. This Notification was dated 24th May, 2013 and was to be valid for a period of one year. Because of the aforesaid Notification, Respondent No.3 issued a letter dated 6th June, 2013 to the Petitioner inter alia informing the Petitioner that since the aforesaid Notification had been issued under the provisions of the BRU Act, pos .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

there has been no further communication received from the Office of Respondent No.3. Accordingly, to challenge the original Notification issued on 24th May, 2013 as well as the letter issued by Respondent No.3 dated 6th June 2013, this Writ Petition was filed. Thereafter, the Notification issued under the BRU Act and which was to remain valid for a period of one year, has been extended from time to time by issuance of fresh Notifications under the provisions of the BRU Act, the latest Notificat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s and advances due to the fact that the procedure existing then for recovery was extremely time consuming and burdensome, and the debts due to banks and financial institutions blocked a significant portion of their funds in unproductive assets, the Recovery Of Debts Due To Banks And Financial Institutions Act, 1993 was enacted. Under this Act, exclusive jurisdiction was conferred upon the Debt Recovery Tribunal ("DRT") [constituted under the said Act] for adjudicating the debts due to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

reforms, which resulted in delays in recovery of defaulting loans. It is in these circumstances the Legislature thereafter enacted the SARFAESI Act. He submitted that under the SARFEASI Act, the framework was such that banks and financial institutions in whose favour a security was created, could invoke the provisions of the Act and enforce their security without the intervention of the Court. He submitted that this being a special legislation and enacted for a greater public purpose (which was .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aken in pursuance of any powers conferred by or under this Act or under the RDDB Act. He, thereafter submitted that Section 35 stipulates that the provisions of the SARFAESI Act would override other laws and would have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. He thereafter invited our attention to Section 37 of the Act which provides that the provisions of the SARFAESI .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

actment to make temporary provisions for industrial relations and other matters to enable the State Government to conduct or to provide loans, guarantee or financial assistance for the conduct of certain industrial undertakings as a measure of preventing unemployment or unemployment relief. He submitted that Section 4 of BRU Act inter alia stipulated that notwithstanding any law, usage, custom, contract, instrument, decree, order, award, submission, settlement, standing order or other provision .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ribunal, Officer or Authority shall be stayed. 8. Mr. Kamdar submitted that in the facts of the present case, a notification (and renewed from time to time) as contemplated under Section 4(1)(a)(iv) was issued by the State Government declaring Respondent No.4 as a relief undertaking. He submitted that by virtue of this notification, it was the contention of Respondent No.4 that the proceedings under the SARFAESI Act could not continue as there was a complete bar as set out in the said Section re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ecurity created in favour of banks and financial institutions are enforced without any hindrance, that the Legislature thought it fit to declare that the provisions of the SARFAESI Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument by virtue of any such law. He submitted that Section 4 and the notification issued thereunder were clearly inconsistent with the rights of the secured creditor to enforce it .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

amp; Ors. [2016] 4 SCC 1. He submitted that what came up for consideration before the Supreme Court was whether the provisions of the SARFAESI Act would override the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 ("SICA, 1985"). He submitted that just as in the case of the BRU Act, where all proceedings are stayed against the company in whose favour a notification has been issued under Section 4, Section 22 of SICA, 1985 also provided for stay of all proceed .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r could take recourse to the provisions of the SARFAESI Act and enforce its security against the sick industrial company. On the same parity of reasoning, Mr Kamdar submitted that we hold that the provisions of the SARFAESI Act override the provisions of the BRU Act and consequently, the letter dated 6th June, 2013, issued by Respondent No.3 be quashed and set aside. 10. On the other hand, Mr Jain learned counsel appearing on behalf of Respondent No.4 submitted that there was no inconsistency be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hat the Statement of Objects and Reasons of this Act would indicate that this Act was promulgated in order to mitigate hardship that may be caused to the workers who are rendered jobless by closure of the undertaking. 11. In contrast he submitted that the SARFAESI Act was brought into force to regulate securitisation and reconstruction of financial assets and enforcement of security interest. This enactment was brought into force to ensure that banks and financial institutions in whose favour a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f India, Mr Jain submitted that Parliament had the exclusive power to make laws with respect to any matters enumerated in List I in the Seventh Schedule to the Constitution ("the Union List"). Similarly, the Legislature of any State had the exclusive power to make laws for such States or any part thereof for any of the matters enumerated in List II in the Seventh Schedule of the Constitution ("the State List"). He submitted that over and above these two Lists, Parliament as w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

etent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void. He submitted that Clause (2) of Article 254 stipulates that where a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Mr Jain submitted that the question of repugnancy would arise only in relation to any entry in the Concurrent List. He submitted that in the facts of the present case, the SARFAESI Act has been enacted by virtue of entry 45 in the Union List whereas the BRU Act is enacted by the State Government under the State List. This being the case, there was no question of repugnancy between the provisions of the BRU Act and the provisions of the SARFAESI Act. 13. Mr. Jain then submitted that under Section .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he provisions of the BRU Act was valid for period of 12 months from the date of its issuance and could be renewed from time to time so that the total period in the aggregate did not exceed 15 years. He submitted that the suspension of the obligations and/or liabilities of the 'Relief Undertaking' as contemplated under the provisions of BRU Act being temporary in nature, there was no question of holding that there was any inconsistency between the provisions of the SARFAESI Act and that o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ibunal, Jaipur & Ors. AIR 2001 Rajasthan 170 15. We have heard the learned Advocates at length and perused the papers and proceedings in the Writ Petition along with the annexures thereto. Before we deal with the rival contentions, it would be necessary to understand the purpose for which both the enactments, namely the SARFAESI Act and the BRU Act, were brought into force. The statements of object and reasons of the SARFAESI Act indicate that the financial sector, being one of the key drive .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

framework had not kept pace with the changing commercial practices and financial sector reforms, which resulted in delays in recovery of defaulting loans. This in turn had the effect of mounting levels of non-performing assets of banks and financial institutions. In order to bring the Indian Banking Sector on par with International Standards, the Government set up two Narasimhan Committees and the Andhyarujina Committee for the purposes of examining banking sector reforms. These Committees inter .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

te dated 16 August, 2016. It is called the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016. The preamble of this amending Act indicates that the same was intended to further amend the SARFAESI Act, the RDDB Act, the Indian Stamp Act, 1899 and the Depository Act, 1996 and for matters connected therewith or incidental thereto. 16. Section 2 of the SARFAESI Act is the definitions clause and inter alia stipulates that in this Act, unless .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of any secured creditor and includes- (i) any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind, on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset; or (ii) such .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eunder:- "13. Enforcement of security interest.-(1) Notwithstanding anything contained in Section 69 or Section 69-A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

bt as non-performing asset under this sub-section shall not apply to a borrower who has raised funds through issue of debt securities; and (ii) in the event of default, the debenture trustee shall be entitled to enforce security interest in the same manner as provided under this section with such modifications as may be necessary and in accordance with the terms and conditions of security documents executed in favour of the debenture trustee; (3) The notice referred to in sub-section (2) shall g .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l communicate 2[within fifteen days] of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower: Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under Section 17 or the Court of District Judge under Section 17-A. (4) In case the borrower fails to di .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt;] (c) appoint any person (hereafter referred to as the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

or to enforce its security interest without the intervention of the Court or Tribunal in accordance with the provisions of the SARFAESI Act. Section 13(2) contemplates a notice being issued to the borrower and stipulates that where any borrower makes any default in repayment of the secured debt or any installment thereof, and such debt is classified by the secured creditor as a non-performing asset, then the secured creditor can call upon the borrower to discharge his liability within 60 days fr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

asset and thereafter transfer the same by way of lease, assignment or sale. These rights that have been granted to the secured creditor under Section 13 to ensure that the secured creditor can enforce its security without having to come to Court or institute any legal proceedings in respect thereof. 19. Thereafter comes Section 14 which inter alia empowers the Chief Metropolitan Magistrate or the District Magistrate to assist the secured creditor in taking possession of the secured asset. This s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

g thereto maybe situated or found, to take possession thereof and forward it to the secured creditor. 20. Section 17 of the SARFAESI Act provides for a remedy to the borrower or any other aggrieved person to approach the DRT and challenge any of the measures taken by the secured creditor in terms of Section 13(4) of the SARFAESI Act. Another provision that must be noted is Section 26-E which provides for priority to secured creditors and inter alia stipulates that notwithstanding anything contai .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

edings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code. 21. Three other provisions of which we must make a note of are Sections 34, 35 and 37 of the SARFAESI Act. Section 34 stipulates that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a DRT or DRAT is empowered by or under this Act to determine, and no injunction shall be granted .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nstrument having effect by virtue of any such law." 22. This Section stipulates that the provisions of the SARFAESI Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Section 37 provides that the provisions of the SARFAESI Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956; the Securities Contracts (Reg .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ld that if a liberal meaning is given to the said expression, Section 35 of the SARFAESI Act would become completely otiose as all other laws would then be in addition to and not in derogation of the SARFAESI Act. The Supreme Court opined that obviously this could not have been the parliamentary intendment, and hence, by limiting the scope of the expression "or any other law for the time being in force" contained in Section 37, held that this expression will have to mean any other laws .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

In fact, by virtue of section 26-E, the dues of the secured creditor have even been given priority over all dues including Government dues, subject to the stipulations and exceptions contained therein. One can hardly dispute that the SARFAESI Act has been enacted in larger public interest to ensure that banks and financial institutions, who hold monies of the public and are the key drivers in the economic progress of the country, are able to recover their debts and outstandings as quickly as pos .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the workers or make other changes which may not be in consonance with the existing labour laws or any agreements or awards applicable to the undertaking. It may be necessary even to exempt the undertaking from certain legal provisions. It is for this reason that the BRU Act was brought into force. Section 2(2) defines a "relief undertaking" to mean an industrial undertaking in respect of which a declaration under section 3 is in force. Section 3 deals with the declaration of the re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

te Government shall, with effect from the date specified for the purpose in the notification, be conducted to serve as a measure of preventing unemployment or of unemployment relief and the undertaking shall accordingly be deemed to be a relief undertaking for the purposes of this Act. (2) A notification under sub-section (1) shall have effect for such period not exceeding twelve months as may be specified in the notification; but it shall be renewable by like notifications from time to time for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

State Government may, by notification in the official Gazettee, direct that - (a) in relation to any relief undertaking and in respect of the period for which the relief undertaking continues as such under sub-section (2) of section 3 - (i) all or any of the laws in the Schedule to this Act or any provisions thereof shall not apply (and such relief undertaking shall be exempt therefrom), or shall, if so directed by the State Government, be applied with such modifications (which do not however af .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uspended in operation or shall, if so directed by the State Government, be applied with such modifications as may be specified in the notification; (iii) rights, privileges, obligations and liabilities shall be determined and be enforceable in accordance with clauses (i) and (ii) and the notification ; (iv) any right, privilege, obligation or liability accrued or incurred before the undertaking was declared a relief undertaking and any remedy for the enforcement thereof shall be suspended and al .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(a)(iv) shall be excluded notwithstanding anything contained in any law for the time being in force. (2) A notification under sub-section (1) shall have effect from such date not being earlier than the date referred to in sub-section (1) of section 3, as may be specified therein, and the provisions of section 21 of the Bombay General Clauses Act, 1904, shall apply to the power to issue such notification." (emphasis supplied) 26. What can be seen from the aforesaid provisions is that under S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

other provisions whatsoever, the State Government may by notification in the Official Gazette direct that in relation to any relief undertaking [in respect of which it continues as such under the provisions of Section 3(2)], any right, privilege, obligation or liability agreed or incurred before the undertaking was declared a relief undertaking and remedy for the enforcement thereof shall be suspended, and all proceedings relating thereto pending before any court, tribunal, officer or authority .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

-section (1) of section 3 and sub-clause (iv) of clause (a) of sub-section (1) of section 4 of the Maharashtra Relief Undertakings (Special Provisions) Act (XCVI of 1958), the Government of Maharashtra hereby - (a) declares that, the industrial undertaking called the Messers Maruti Cotex Limited, Plot No.T-17, Kagal Hatkanangale, Five Star M.I.D.C., Post-Talandge, Taluka - Hatkanangale, District - Kolhapur - 416 216, having its registered office a 17-E, Shiv Parvati, Nagala Park, Kolhapur 416 00 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ne, 2017 (both days inclusive), be conducted to serve as a measure of preventing unemployment; and (b) directs that, in relation to the said relief undertaking and in respect of the said period of One Year commencing on the 18th June, 2016 and ending on the 17th June, 2017 (both days inclusive), for which the said relief undertaking continues as such, any rights, privileges, obligations or liabilities except the obligations or liabilities incurred in favour of workmen of the said relief undertak .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l be suspended and all proceedings relating thereto pending before any court, tribunal officer or authority shall be stayed, provided that the said relief undertaking adopts all necessary reforms mandatorily as decided by the State Government during the relief undertaking period. By order in the name of the Governor of Maharashtra, SANJAY DEGAONKAR, Deputy Secretary to Government. (emphasis supplied) 28. This notification inter alia stipulates that it shall be valid for a period of one year comm .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of BRU Act read with the notification issued thereunder (as reproduced above), what becomes clear is that all liabilities and obligations of Respondent No.4 stand suspended. This would include the liability that Respondent No.4 has to the Petitioner. The effect of this would be that by virtue of the provisions of Sections 3 and 4 of the BRU Act read with notification issued thereunder, the Petitioner (ARC) would be restrained from exercising its rights against Respondent No.4 under the provisio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f Sections 3 and 4 of the BRU Act read with the notification issued thereunder, the secured creditor is restrained from exercising its statutory rights under the provisions of the SARFAESI Act. To this extent, clearly there is an overlap between the provisions of BRU Act and the provisions of the SARFAESI Act. However, section 35 of the SARFAESI Act clearly mandates that the provisions of the SARFAESI Act shall have effect, notwithstanding anything inconsistent therewith contained in any other l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e relief undertaking in whose favour a notification has been issued. 30. In the view that we have taken, we are supported by a decision of the Supreme Court in the case of Madras Petrochem Ltd. [2016] 4 SCC 1. The issue involved before the Supreme Court was on the play between the provisions of SICA, 1985 and the SARFAESI Act. The Supreme Court, after noting all the relevant provisions of the SARFAESI Act and SICA, 1985 along with their objects and reasons, held as follows: "36. A conspectu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

imited-such as in the case of the Arbitration and Conciliation Act, 1996-or in the case of the later Act expressly yielding to the Sick Industrial Companies (Special Provisions) Act, 1985, as in the case of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Where such is not the case, as in the case of Special Courts Act, 1992, it is the Special Courts Act, 1992 which was held to prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. 37. We have now to u .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ct, 1985 unlike Section 34(2) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Section 37 of the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 states that the said Act shall be in addition to and not in derogation of four Acts, namely, the Companies Act, the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992 and the Recovery of Debts Due to Banks and Financial Institutions .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

al Provisions) Act, 1985. It is of great significance that only the first two Acts are included in Section 37 and not the third i.e. the Sick Industrial Companies (Special Provisions) Act, 1985. This is for the obvious reason that the framers of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 intended that the Sick Industrial Companies (Special Provisions) Act, 1985 be covered by the non obstante clause contained in Section 35, and not by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rovisions) Act, 1985. The new legislative scheme qua recovery of debts contained in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 has, therefore, to be given precedence over the Sick Industrial Companies (Special Provisions) Act, 1985, unlike the old scheme for recovery of debts contained in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. 38. Another interesting pointer to the same conclusion is the fact that Sec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Special Provisions) Act, 1985] by the expression "save as provided under sub-section (2)". 39. This is what then brings us to the doctrine of harmonious construction, which is one of the paramount doctrines that is applied in interpreting all statutes. Since neither Section 35 nor Section 37 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is subject to the other, we think it is necessary to interpret the expression "or an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cement of Security Interest Act, 2002 will prevail over all other laws that are inconsistent therewith. A middle ground has, therefore, necessarily to be taken. According to us, the two apparently conflicting sections can best be harmonised by giving meaning to both. This can only be done by limiting the scope of the expression "or any other law for the time being in force" contained in Section 37. This expression will, therefore, have to be held to mean other laws having relation to t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e sick industrial companies and not to deal with the securities market. ** ** ** 44. It will, thus, be seen that notwithstanding the non obstante clauses in Sections 22(1) and (4), read with Section 32, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 will have to give way to the measures taken under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, more particularly referred to in Section 13 of the said Act, and t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rial Companies (Special Provisions) Act, 1985 overrides the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. 2. Where a secured creditor of a sick industrial company seeks to recover its debt in the manner provided by Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, such secured creditor may realise such secured debt under Section 13(4) of the Securitisation and Reconstruction of Finan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 will continue to have full play. 4. Where, under Section 13(9) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, in the case of a sick industrial company having more than one secured creditor or being jointly financed by secured creditors representing 60% or more in value .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ce their security under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, any reference pending under the Sick Industrial Companies (Special Provisions) Act, 1985 cannot be proceeded with further-the proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 will abate." (emphasis supplied) 31. As can be seen from the aforesaid decision, the Supreme Court has clearly come to a finding that Section 22 of SICA, 1985 a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Act, 1956, or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the appellate aut .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

der section 13 of SARFAESI Act. As stated earlier, the provisions of BRU Act have the effect of restraining the secured creditor from exercising its statutory rights under the provisions of Section 13 of the SARFAESI Act which suspend/stay the enforcement of its security interest. This would show that there is a clear inconsistency between the provisions of Section 13 of the SARFAESI Act (which enable the secured creditor to enforce its security interest without intervention of the Court) and th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ity interest. 32. Faced with this situation, Mr Jain sought to distinguish the judgment of the Supreme Court in case of Madras Petrochem Ltd. [2016] 4 SCC 1 on the ground that both the Acts, namely, SARFAESI Act and SICA, 1985 were enacted by Parliament by exercising power under the Union List to the 7th schedule of the Constitution. In the present case, the BRU Act has been enacted by the State Legislature by exercising its powers under the State List of 7th Schedule to the Constitution and whi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

der the State List. In these circumstances, he submitted that the Judgment of the Madras Petrochem Ltd.1 is inapplicable in the facts and circumstances of the present case. 33. Firstly, we must note that the BRU Act is not enacted under any Entry in the State List but under Entry 23 of the Concurrent List which deals with social security and social insurance; employment and unemployment. Be that as it may, it would be appropriate to refer to Articles 246 and 254 of the Constitution of India in t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

246(1) the Legislature of any State, also has the power to make laws with respect to any of the matters enumerated in List III ("the Concurrent List"). The question of repugnancy is dealt with in Article 254 and inter alia stipulates that if any provision of a law made by the Legislature of the State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

upreme Court has very succinctly set out as to how conflicts between laws made by Parliament and by the State Legislature have to be construed and/or resolved. Paragraphs 9 to 12 are very instructive in this regard and read thus:- "9. Parliament has exclusive power to legislate with respect to any of the matters enumerated in List I, notwithstanding anything contained in clauses (2) and (3) of Article 246. The non obstante clause under Article 246(1) indicates the predominance or supremacy .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

avoid any conflict. However, if the conflict is unavoidable, and the two enactments are irreconcilable, then by the force of the non obstante clause in clause (1) of Article 246, the parliamentary legislation would prevail notwithstanding the exclusive power of the State Legislature to make a law with respect to a matter enumerated in the State List. 11. With respect to matters enumerated in List III (Concurrent List), both Parliament and the State Legislature have equal competence to legislate. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

conflict. Second, where the two legislations are with respect to matters in the Concurrent List and there is a conflict. In both the situations, parliamentary legislation will predominate, in the first, by virtue of the non obstante clause in Article 246(1), in the second, by reason of Article 254(1). Clause (2) of Article 254 deals with a situation where the State legislation having been reserved and having obtained President's assent, prevails in that State; this again is subject to the p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

read as a whole. The Court has to make every endeavor to ensure that both can stand together without there being any conflict. However, if the conflict is unavoidable and the two enactments or any provisions thereof are irreconcilable, then by the force of the non-obstante in clause (1) of Article 246, the Parliamentary Legislation would prevail notwithstanding the exclusive power of the State Legislature to make a law with respect to a matter enumerated in the State List. This would also apply .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ther law for the time being in force. This stipulation does not mean that the provisions of BRU Act or for that matter any other law are repugnant to the provisions of the SARFAESI Act or are rendered unconstitutional. There can certainly be a situation where there may not be any repugnancy but one could still prevail over the other in the event of an overlap. In this regard, it would also be apposite to refer to a decision of the Supreme Court in the case of National Engineering Industries Ltd. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ay be no direct conflict, a State law may be inoperative because the Commonwealth law, or the award of the Commonwealth Court, is intended to be a complete exhaustive code; and (3) Even in the absence of intention, a conflict may arise when both State and Commonwealth seek to exercise their powers over the same subject-matter." 14. Quoting the aforesaid observations, this Court in Hoechst Pharmaceuticals Ltd. v. State of Bihar [1983) 4 SCC 45, 87 : 1983 SCC (Tax) 248] speaking through A.P. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mulative conditions. Therefore, these laws must tread on the same field and they must be repugnant or inconsistent with each other. In our opinion, in this case there is a good deal of justification to hold that these laws, the Industrial Disputes Act and the Rajasthan Act tread on the same field and both laws deal with the rights of dismissed workman or employee. But these two laws are not inconsistent or repugnant to each other. The basic test of repugnancy is that if one prevails the other ca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cause the application under Section 28-A of the Rajasthan Act was dismissed not on merit but on limitation. There is a period of limitation provided under the Rajasthan Act of six months and it may be extended for reasonable cause. But there is no period of limitation as such provided under the Industrial Disputes Act. Therefore, that will be curtailment of the rights of the workmen or employees under the Industrial Disputes Act. In the situation Section 37 declares that law should not be constr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ny relief or to go in for an adjudication in case of the termination of the employment. If that is the position in view of the provisions 6 months' time in Section 28-A of the Rajasthan Act has to be ignored and that cannot have any binding effect inasmuch as it curtails the rights of the workman under the Industrial Disputes Act and that Act must prevail. In the premises, there is no conflict between the two Acts and there is no question of repugnancy. (emphasis supplied) 36. In view of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n force, or any instrument having effect by virtue of any such law. What is important to note is that if we were to accept Mr Jain's contention, it would effectively mean that "any other law" referred to in Section 35 would only mean a Central Law enacted by the Parliament exercising its power under the Union List or the Concurrent List as more particularly set out in Article 246 of the Constitution. We see no reason to limit the scope of the words "any other law" appeari .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(M.P.) v. Suresh Chandra MahaveerPrasad Mantri, Bombay [1987] 3 SCC 99. On a careful perusal of the said judgment, we fail to see how the same is applicable to the facts of the present case. The facts of that case would reveal that the Respondent therein filed a Summary Suit against the Appellant in the Bombay High Court on its original side. The Appellant before the Supreme Court did not contest the suit and the same was accordingly decreed. Thereafter, the Respondent got the decree transferre .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lant to be a relief undertaking, but however, contended that the District Judge had no jurisdiction to entertain any objection to the execution of the decree validly passed by the Bombay High Court. This contention of the Respondent was upheld by the District Judge. Thereupon the Appellant filed a revision in the High Court which was also rejected confirming the order of the District Judge. It is, in these circumstances, that the Appellant approached the Supreme Court and the question of law fra .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

In its decision, after construing the provisions of the said Act, the Supreme Court eventually held that if the contention of the Respondent was to be accepted (namely, that execution of its decree could proceed notwithstanding the fact that the Appellant was declared a relief undertaking), it would render Section 5 of the said Madhya Pradesh Act a nullity and destroy the benefit conferred by that Section. The Supreme Court held that nobody questions the validity of the decree passed, but what i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ager Breweries Pvt. Ltd. v. Dhariwal Bottle Trading Co. & Anr [1986] 2 SCC 382. Here we find that the issue involved before the Supreme Court was not of any inconsistency between the provisions of the BRU Act and that of any other law. The facts of this case would reveal that the Appellant before the Supreme Court was carrying on business and ran into financial difficulties. As a result of this, winding up proceedings were commenced against it. The 1st Respondent before the Supreme Court and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

overnment of Maharashtra took action under the BRU Act by declaring it as a relief undertaking and issued a notification to that effect. Once it was declared as a relief undertaking, the proceedings for winding up the Appellant filed by the 1st Respondent were also stayed by the Company Judge of the High Court. This order of the Company Judge was challenged before the Division Bench without any success and this order became final. Having failed in its attempt in winding up proceedings, Responden .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed from this order to the Division Bench of the Bombay High Court was also dismissed. It is in these circumstances that the matter came before the Supreme Court. In these facts, the Supreme Court, after analyzing the provisions of the BRU Act held that the decision of the High Court to the effect that unless the loan is advanced by the State Government under the Act, no declaration could be made under Section 3 thereof, was wholly erroneous. Once again we fail to see how this Judgment is applica .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. [2016] 3 SCC 762. On a careful perusal of this decision, we find that the same is wholly inapplicable to the facts of the present case. The issue that was raised before the Supreme Court and decided, was whether the provisions of SARFAESI Act will override the provisions of the Rent Control Act. The question before the Supreme Court was how can the rights of the "protected tenant" be preserved in cases where the debtor landlord secures a loan by offering the very same property as a s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ld amount to stultifying the statutory rights vested in the tenants under the Rent Control Act. The Supreme Court inter alia held that pre-existing genuine tenants (prior to creation of the mortgage) could not be evicted by taking recourse to the provisions of the SARFAESI Act. The logic behind the same was quite simple. A tenant who had not mortgaged its tenancy rights with the bank and had absolutely no privity with the bank or the loan granted to the borrower (who happened to be the landlord .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

k, the consent of the creditor had to be taken. This itself postulates that the SARFAESI Act did not destroy the pre existing genuine rights of tenants that were in the property prior to the mortgage being created. Thus, in these circumstances, the Supreme Court held that the provisions of SARFAESI Act and more particularly Section 35 thereof cannot override the provisions of the Rent Control Legislation. The facts before us are totally different. In the facts of the present case, Respondent No. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Section 13 thereof. This would clearly show that there is a clear overlap between the provisions of the BRU Act read with the notification issued thereunder on the one hand and Section 13 of the SARFAESI Act on the other. Since, SARFAESI Act is an Act made by the Parliament and much later than when the BRU Act was brought into force, coupled with the fact that Section 35 of the SARFAESI Act clearly stipulates that the provisions of SARFAESI Act would have effect notwithstanding anything inconsis .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ecurity Association of India v. Union of India and Ors. [2014] 12 SCC 65. This judgment too, we find is wholly inapplicable to the facts of the present case. What was being considered by the Supreme Court was the provisions of the Private Security Agencies (Regulation) Act, 2005 (the Central Act made by the Parliament) and the Maharashtra Private Security Guards (Regulation of Employment and Welfare) Act, 1981 (State Act) enacted by the Government of Maharashtra. In the facts of that case the va .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

isions of the SARFAESI Act, by virtue of Section 35 thereof, shall have effect notwithstanding anything inconsistent therewith in the BRU Act. Meaning thereby, that the secured creditor can take recourse to Section 13 of the SARFAESI Act notwithstanding Sections 3 & 4 of BRU Act and the notification issued thereunder. In these circumstances, we find that even the reliance placed on this decision is wholly without any merit and has no application in the facts and circumstances of the present .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t would apply to the facts of the present case as in the present case, the issue involved is whether the provisions of the SARFAESI Act would prevail over the provisions of the BRU Act, rather than the provisions of the RDDB Act. In any event this judgment is not binding on us and would only have persuasive value. This being the case, and considering the ratio laid down by the Supreme Court in the case of Madras Petrochem Ltd.1 we find that the reliance placed on this decision of the Rajasthan H .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

dated 6th June, 2013 issued by Respondent No.3. 43. Rule is made absolute in the aforesaid terms. However, in the facts and circumstances of the case, there shall be no order as to costs. 44. In view of our detailed judgment, there is no need to pass any orders in the pending Civil Applications, and the same are disposed of accordingly. 45. After this judgment was pronounced, to be fair to the advocate appearing for Respondent No.4, we record his oral request for continuing of an order passed by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(Respondent No.3) called upon the Petitioner to hand over possession of the properties. The Petitioner requested thirty days time to adopt appropriate proceedings. The order passed on 11th June, 2013 wrongly refers to Respondent No.4 as Petitioner. The Petitioner is an ARC and which would not ordinarily ask for any interim relief. However, it was forced to apply for interim reliefs as the property in question, the possession of which was with it in terms of the measures under the SARFAESI Act, w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version